Buffett Bests Geithner on Goldman Investment

I hope Tim Geithner isn’t letting his ego run away with him over the return that he made on the government’s Goldman Sachs (NYSE:GS) stake. It’s chump change compared to what Warren Buffett made on his investment.

Mr. Buffett’s stake in Goldman is now worth $9.1 billion, or about $4.1 billion more than what he paid 10 months ago, according to an analysis by Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.

According to Mr. Wilson’s calculations, Mr. Buffett would realize an annualized return of 111 percent if he sold his Goldman stake, which is held by his conglomerate Berkshire Hathaway.

In comparison, the federal government received a 23 percent annualized return for its Goldman investment.

You think we might have left a little on the table?

While we’re speaking of Buffett, John Hempton at Bronte Capital has an interesting take on his investment strategies:

Warren Buffett may – at least in part to make management comfortable – state regularly that his favourite holding period for a stock is forever. And he is a darn good buyer of shares. His name is used to promote “buy and hold”.

What is less well recognised is that he is a fantastic seller. In 2000 he disposed of very large shareholdings in Fannie Mae and Freddie Mac. The stocks nearly doubled after he sold them – so for a while it looked like his timing was awry.

Why am I writing today? Because Warren is selling his stake in the Moodys rating agency. It looks like he is rather late. The franchise has already been seriously impaired. Moodys gave its blessed AAA to lots of things that defaulted. Indeed it seems the Moodys AAA is cursed.

Still plenty of people think that there will be a role for rating agencies – and that Moodys end position – backed by regulation – is solid.

Be warned. Buffett is a very canny buyer of equities. He is even more canny a seller.

A lot of people have been taking shots at Buffet lately. Berkshire Hathaway has taken its lumps and some have questioned the investments he’s made in a super buyers market. It might be a little soon to count out the old codger.

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.